August 22, 2013

Preparing for the Next Sandy: SEC, FINRA and CFTC Guidance

As we sit here in the middle of the Atlantic hurricane season (luckily with no major hurricanes or superstorms to date), the SEC, FINRA and the CFTC teamed up to provide guidance on business continuity planning for regulated financial firms. The guidance notes that Hurricane/Superstorm Sandy closed the equities and options markets on October 29 and 30, 2012, prompting the regulators to take a hard look at business continuity and disaster planning at regulated firms. The guidance includes useful observations and recommendations on dealing with widespread disruptions, alternative location considerations, vendor relationships, telecommunications services and technology considerations, communication plans, regulatory compliance considerations and testing and review processes.

While this guidance was based on examinations of financial firms and is largely targeted to them, some of the observations and recommendations are relevant to any company looking to implement or tune up its business continuity and disaster planning, especially in light of such a natural disaster with such widespread repercussions as Hurricane/Superstorm Sandy.

Admitting Misconduct in SEC Actions: Here Come the Cases

Broc noted back in June the Commission’s decision that Enforcement’s “settlement without admission” policy would undergo an incremental change, which would apply only to certain cases as determined on a case-by-case basis. It appears that the policy change is now coming to fruition in actual cases with the recent announcement of the SEC’s settlement with Phillip Falcone and Harbinger Capital. David Smyth of Brooks Piece notes in the Cady Bar the Door blog:

Earlier this summer, SEC chair Mary Jo White told a Wall Street Journal conference that the Commission would in some circumstances depart from its longstanding policy of allowing defendants to settle cases without admitting or denying wrongdoing. She didn’t let Labor Day hit before putting the new plan into action.

You may remember that the SEC had alleged in June 2012 that Philip Falcone improperly “borrowed” $113 million from his advisory firm Harbinger Capital Partners to pay his personal taxes, secretly favored certain customer redemption requests at the expense of other investors, and conducted an improper “short squeeze” in bonds issued by a Canadian manufacturing company. You may also remember that the SEC’s staff took a run at settling this matter last month, and the Commissioners rejected the effort by a 3-1 vote. On Monday, the SEC settled its case against Falcone and Harbinger Capital. In doing so, the SEC required the defendants to pay more than $18 million in monetary sanctions and admit wrongdoing. As a technical matter, the consent filed in the Southern District of New York included an annex, all of the facts in which Falcone and Harbinger admitted. Falcone also agreed to be barred from the securities industry for at least five years, though he is not barred from acting as an officer or director of a public company.

We continue to post memos on the SEC’s new admissions policy in our “SEC Enforcement” Practice Area.

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– EU Consults on Promoting Long-Term Investment
– New SEC Software Identifies Potential Fraud
– SEC Commissioner Aguilar Weighs In on Diversity
– European Commission Provides Color On EU ‘Action Plan’
– Court Rules Dodd-Frank’s Wells Notice Deadline is Internal

– Dave Lynn